Scripps Howard News Service
With the federal government running trillion-dollar deficits, revenues flat and President Obama’s ambitious health-care plan to pay for, it was inevitable that the Value Added Tax would make one of its periodic appearances in the nation’s capital.
The VAT is a sort of national sales tax, although it differs from the typical sales tax in that the VAT is imposed only on the increase in value as it goes from producer to wholesaler to retailer to the consumer, who ultimately bears the entire cost.
The VAT, its critics will be delighted to know, is an invention of the French who have had one since the 1950s. The United States is one of a handful of major nations that does not have one. The European nations do, running in the 18 percent to 25 percent range. Canada has a relatively modest VAT ó called the Goods and Services Tax ó of 5 percent, with exceptions for things like groceries.
The Washington Post notes that there is increased chatter about the VAT among tax experts, some of whom have pressed the idea on Treasury secretary Timothy Geithner. And the chairman of the Senate Budget Committee, Sen. Kent Conrad, D-N.D., is said to be open to the idea.
The disadvantages of the VAT are that it is regressive, initially inflationary and easy for lawmakers to raise incrementally.
The advantages are that it can be relatively simple to administer, hard to evade and it raises an absolute ton of money. In theory it would allow us to do away with large parts of the income tax.
The Washington Post cites a paper published in the Virginia Tax Review that says a 25 percent VAT, a level common in Western Europe, would raise enough money to balance the budget, pay for health-care reform, exempt millions of families from the income tax and allow the top income tax rate to be slashed to 25 percent.
With other ideas for major revenue raisers, like the cap-and-trade scheme for greenhouse gases, losing momentum, the VAT will likely start to pick up tacit support in Congress. But, even assuming it could be sold to the voters, the VAT makes sense only as part of broad-scale tax reform and simplification. Otherwise, we could end up with the worst of all: three taxes ó the income, the alternative minimum and the value added.